INTERNATIONAL BUSINESS; The Troubled Oil Company

Published: April 20, 2005

Ever since Hugo Ch?z was elected president of Venezuela in 1998, the American executives at Citgo Petroleum, the large refiner and gasoline marketer that is owned by Petr?s de Venezuela and based here, have worried about their future under the mercurial leader.

Their fears may be coming true. Current and former Citgo executives have revealed in recent weeks that Mr. Ch?z has shaken to the core the company's once-staid culture, leaving Citgo in a state of near disarray. Nearly every high-ranking executive has resigned over the last two years, including the refining chief, the chief financial officer, the head auditor and the marketing director.

Geoff Reid, a former assistant treasurer, said in an interview that he left in part because it had become tough to track the company's cash flow, and he had become concerned about his ''personal liability'' in approving Citgo's financial statements.

All the upheaval means Citgo has been slow to seize on growth opportunities in oil refining, which is experiencing its strongest returns in more than two decades. Citgo's six refineries pump out about 900,000 barrels a day of refined products, and the company also sells gasoline at more than 13,000 Citgo-branded service stations, making it the fourth-largest gasoline retailer in the country.

[On Sunday, Venezuela's oil minister, Rafael Ramirez, said the government planned to sell two Citgo refineries in the United States, possibly signaling Mr. Ch?z's intent to disassemble the American subsidiary, which has existed since 1910.]

Citgo's turmoil has been masked by recent record high oil prices and some of the fattest refining profit margins in history. Citgo's net income increased 42 percent, to $625 million last year, on revenue of $32.3 billion, from $439 million in profit on $25.5 billion of revenue in 2003. (While Citgo does not have publicly traded shares, the company sells its bonds in the United States and files financial statements here.)

While these results are impressive, some rivals, like the Valero Energy Corporation, have done much better. Valero more than doubled its net income, to $1.5 billion last year, not including nearly $300 million in profits from a refinery acquisition.

Of the recent moves, perhaps the most debilitating have been Mr. Ch?z's efforts to put his loyalists, including some former military colleagues, in charge of the company. In doing so, he has reversed a tradition, in place since Petr?s de Venezuela took control in 1990, that American executives run Citgo.

In interviews, more than a dozen former Citgo managers said a marked shift in Citgo's culture came after the arrival of the Venezuelan expatriates. In moving the company from Tulsa to Houston last year, for example, they spent lavishly on a bulletproof enclave at the new head office. A company plane took a top Citgo executive and his family on trips to Europe. And a related company bank account was the source of a large donation to one of Houston's most-exclusive private schools, attended by the son of Antonio J. Rivero, a Citgo executive who participated in a failed coup attempt with Mr. Ch?z in 1992.

Much of the intrigue is linked to Mr. Rivero, who was named Citgo's No. 2 executive in 2003 as part of an effort to make Citgo more accountable to Caracas. Mr. Rivero, 41, together with Luis Mar? Citgo's former chief executive, were placed on leave from Citgo in recent weeks after an investigation into corruption accusations against them gained momentum in the Venezuelan Congress. In its most recent filing with the Securities and Exchange Commission, Citgo disclosed that it had engaged a team of outside lawyers to investigate corruption accusations related in part to the move. Citgo said it expected to incur total costs of $69 million for the move, with $37 million of that used to refurbish its new offices.

In telephone interviews early this month, Mr. Rivero described the move, in which 700 employees were relocated, as necessary for Citgo to be in closer contact with energy companies and financiers in Houston. He also defended his tenure at Citgo, contending he was a target of politically motivated attacks because of his opposition to selling parts of the company.

Petr?s de Venezuela continues to employ Mr. Rivero, a graduate of Venezuela's military academy in the city of Maracay. He took part in the unsuccessful coup in February 1992 that thrust Mr. Ch?z, a former paratrooper leader, onto Venezuela's political scene. A spokesman for Petr?s de Venezuela did not return phone calls and e-mail messages seeking comment.

When he arrived in Tulsa in 1999, Mr. Rivero had no experience in the oil industry and spoke little English. He had been trained as an electronics engineer. Initially he was given a financial position with a salary of around $200,000, equivalent to what a refinery manager earns. For months, eight former employees said, he roamed around with little responsibility, introduced himself as an emissary of Mr. Ch?z and came to be called ''the captain'' or ''el piloto'' by other Citgo employees.